Homeowners / Hazard Insurance

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GrewUpInIrvine_IHB

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<p>Does anybody have a good primer on home/hazard insurance?</p>

<p>I'm a little unclear exactly what policy limits I would be required to have - am I insuring the cost of reconstructing the house, the amount of the mortgage, or am I insuring the sale price of the home? (and thus insuring the value of the dirt - which seems crazy) I'm not sure what lenders require.... and I am trying to run numbers to see what my actual cost of homeownership would be. (principle, interest, tax, melo-R, HOA's, etc.)</p>

<p>Thanks!</p>
 
It's a little complicated in California. IIRC, I don't think you can get full replacement value anymore. The best thing to do is to ask your lender what they require. <a href="http://www.fanniemae.com/homebuyers/glossary/homeownersinsurance.jhtml?p=Resources&s=Glossary">This</a> is what Fannie Mae has to say.
 
You can get full replacement value for your home and content through major insurance companies, ie. farmer, state farm, AAA. Since it is full replacement value, the policy limit doesn't really mean much. Also remember the insurance is only for your structure, not the land. Sale price, and and mortgage has nothing to do with your insured value.
 
<p>Ok, I think that I'm getting a sense for things, but I suppose I don't understand:</p>

<p>1. Is there a typical policy will the lender will require in order to close the escrow AND</p>

<p>2. If the policy only needs to cover full replacement value - how in the world do I figure that out?</p>

<p>I suppose if it is an existing home, the property assessment can tell me the value of the structure and the value of the dirt, but how does this tell me the "replacement cost?" (I'm guessing that the cost of reconstruction does not equate to the actual value of the structure...kind of like buying replacement parts on a production automobile, economies of scale and all)</p>

<p>And if I bought a brand-new home, what then? Is there already an assessment to work from? Does the lender specify/suggest an amount? If the lender specifies an amount, what could I expect that to be? a percentage of the home price, etc?</p>

<p>As an example, say I wanted to buy a $1-million home in Woodbury, with a mortgage of 700K...</p>
 
Figure $200 to $300 a sqft for replacement cost. I would go with the higher range because if your house somehow implodes in ten years $300 sqft will be on the cheap side with the inflation factor. Don't worry about the assessment value worry about how much would it cost to rebuild this home. If you have a lot of upgrades I would consider $350 a sqft.
 
<p>GUII, </p>

<p>I pay $960.00 a year for my homeowner's insurance (house is out of state). The actual assessed value of the home (structure only) is $180,000.00, so I bought coverage for the entire 180,000 and an additional $40,000 of coverage for the contents of the home (appliances, personal possessions, furniture, etc.).....that's 960.00 a year for $220,000 worth of coverage. Then again, I don't live in any hazard areas so my cost is obviously going to be lower (no earthquakes, crazy fires, etc)...and my rebuild cost is cheaper there than it is here....I estimated $130.00 a sq ft for my cheapy little house...perhaps I should up it a bit now. </p>

<p>So if my house burns down I will get a check for 180,000 to rebuild my house and 40,000 to replace my "stuff". I have a $5000.00 deductible.</p>

<p>So add up the cost of your "stuff"/contents of a future home, and the hypothetical cost of rebuilding your STRUCTURE from scratch....ie: Graph's (high?) estimate of $250 a sq ft for ballpark.....250 X 2000 sq ft = $500,000.....then say $50,000 for contents....$550,000 worth of homeowner's insurance. </p>

<p> </p>
 
<p>If my house burns down. . . . . .</p>

<p>Given what the insurance companies pulled with the last hurricane claims, I do not trust them to pay policy limits even on a clear total loss situation. If you live in a relatively disaster free area, they might pay on the grounds it was a fluke.</p>

<p>As I've posted before, Pru did pay policy limits on our hurricane Andrew claim (thanks again Pru) but then cancelled us. If we had another hurricane claim like that, I'm sure we'd have a fight to collect. Of course, our insurance bills are outta sight.</p>

<p>I'm curious, do you guys have earthquake insurance? Are the houses built with 'quakes in mind?</p>
 
You may find <a href="http://www.rmiia.org/Homeowners/Walking_Through_Your_Policy/Homeowners_Insurance_basics.htmhttp://www.rmiia.org/Homeowners/Walking_Through_Your_Policy/Homeowners_Insurance_basics.htm">this</a> helpful as well.
 
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